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Scare Tactics

New England’s proposed capacity market reform would force generators to ‘Be There or Else.’

Fortnightly Magazine - April 2014
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ISO New England wants to remake its forward capacity market. As it explains, the FCA falls short of what's really needed to ensure reliability, as the market pays winning bidders only according to their unit "availability," as defined under various technical rules riddled with holes, whereas, as the ISO contends, a better test of true capability would instead measure whether power plants and other resources are actually supplying energy in real time during conditions of scarcity.

The current availability metric, says the ISO, is "deeply flawed."

We've alluded to these complaints already in this column and elsewhere in Fortnightly. A year ago, ISO-NE confirmed that, in examining the dispatch response following the 36 largest electric system contingency events of the last several years, it found that, on average, the response rate for the region's non-hydro resources was less than 60 percent of what was requested. (See, " No Fuel, No Power ," April 2013.)

Outage rates are rising. EFORd (equivalent forced outage rate - demand) rose in New England for fossil-fired steam units from about 4.25 percent in 2007 to about 16.5 percent in 2003, and climbed 2.33 times for all generators over the same period.

Capacity resources satisfy technical eligibility rules for participation in the FCM, but then tend to fail to perform adequately when called on during shortage events. And when the ISO then turns to lower-tier plants with capacity supply obligations, it often finds they will require long lead times to start and ramp up, and so are unable to address the reserve shortage in real time.

Testifying in support of the ISO, Peter Cramton, professor of economics at the University of Maryland, notable also for his testimony given at FERC's technical conference last September on the future of capacity markets, describes the problem as "money for nothing" - how some resources operate only to satisfy their annual capability audit (enough to get paid), but then contribute precious little resource adequacy.

Attorney Randall Speck (Kaye Scholer), who represents various New England regulators, consumer reps, and public advocates (all of which oppose the ISO's current effort to remake the FCA) favors a more colorful metaphor. He talks of "zombie" generators - units paid to be available but which are actually unable to perform.

The ISO puts it bluntly: "The system's operators no longer have confidence that resources will be able to perform when needed."

A Middle Ground?

The ISO calls its plan "Pay for Performance." It would set up a regime by which generators, resources, and other capacity suppliers are pitted against one another -their real-time performance during acute scarcity conditions would be compared, one against the other, to judge which resources are guilty of under-performing and which qualify as over-performers. Laggards would be penalized, while leaders get incentive rewards.

Nevertheless, the vote in favor of the ISO's PfP plan among market participants was only 10 percent. Compare

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